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IRS Lowers 2022 Employer Health Plan Affordability Threshold to 9.61% of Pay Cost-Sharing

Sep 15, 2021

The IRS Lowered the 2022 Employer Health Plan Affordability Threshold to 9.61% of Pay Cost-sharing, limited to $103.14/month for self-only coverage under FPL safe harbor.

The IRS announced that employer-sponsored health coverage will satisfy the Affordable Care Act (ACA) affordability requirement next year if the lowest-cost, self-only coverage option an employer offers does not exceed 9.61 percent of an employee’s income.

The threshold in 2021 was 9.83 percent. It had risen from 9.78 percent in 2020.

Which Employers Need to Worry About ACA Affordability?

The ACA employer mandate rules apply to employers that are “Applicable Large Employers,” or “ALEs.”  In general, an employer is an ALE if it (along with any members in its controlled group) employed an average of at least 50 full-time employees, including full-time equivalent employees, for at least 50% of the prior calendar year.

If you are an “ALE” you have received IRS Letter 226J informing you of the ACA employer mandate penalty assessments under both the A Penalty and B Penalty.  We have seen these letters received by our clients and the penalties can be large.

An Insight Into How The 2022 Affordability Decrease to 9.61% Affects Employers:

  • 2022 Affordability Percentage Decrease to 9.61%: The IRS has announced that ACA affordability percentage will decrease from 9.83% in 2021 to 9.61% in 2022.
  • 2022 Lowest-Cost Plan is No More Than $103.14/Month: Employers offering a medical plan option in 2022 that costs employees no more than $103.14 per month for employee-only coverage will automatically meet the ACA affordability standard.  Such employers should utilize the federal poverty line affordability safe harbor that deems coverage affordable for all full-time employees, as well as the qualifying offer method for streamlined ACA reporting.
  • 2022 Lowest-Cost Plan Exceeds $103.14/Month: Employers that do not offer a medical plan option meeting the 2022 federal poverty line affordability safe harbor (i.e., the lowest-cost plan option at the employee-only tier costs employees more than $103.14/month) should generally utilize the rate of pay affordability safe harbor.  This approach requires a straightforward analysis of the lowest hourly rate of pay for hourly full-time employees and the lowest monthly salary for salaried full-time employees.
  • 2022 Contribution Strategy Considerations: When designing 2022 employee contribution levels, consider these affordability safe harbors to avoid potential ACA employer mandate “B Penalty” liability.  Where possible within budgetary constraints, employers should consider offering at least one medical plan option to full-time employees in all regions with an employee-share of the premium not exceeding $103.14/month for employee-only coverage to simplify affordability compliance.

The IRS annually adjusts the affordability threshold by considering the ratio of premium growth to income growth in the preceding calendar year. Because premiums for employer-sponsored health coverage increased at a lower rate than national income growth during 2021, due largely to a drop-off in the use of non-emergency health care services as cases of COVID-19 surged, the 2022 affordability percentage dropped below the 2021 level.

The agency announced the 2022 affordability threshold — also known as the shared-responsibility affordability percentage or cost-sharing limit — on Aug. 30 in Revenue Procedure 2021-36.

Sources:

SHRM
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